Case Study: The Home Depot

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Case Study: The Home Depot

Preface

This Essentials of Strategic Management assignment has been made by three persons which have been working together and individually to finish the assignment properly and in time.

Secondly, we would like to thank the company whose websites we were able to visit and use, to get additional information that we could use for leading the assignment of Home Depot to a successful ending.

We can say, that it was a pleasure to work on this assignment and would, in the third place, like to thank each other. The persons who worked on this assignment, for the effort and time that is put in the assignment, that brought us to this finished version.

Content

1.Preface

2.Introduction

3.Problem definition

4.Summary

5.Conclusion

6. Chapter 1: External analysis of Home Depot Inc.

7.   Chapter 2: Internal analysis of Home Depot Inc.

8.  Chapter 3: Strategic forces.

9.  Chapter 4: Core Competencies Home Depot Inc.

10.  Chapter 5: Distinctive Competencies Home Depot Inc.

11. Chapter 6: Competencies transferred to different markets

12. Chapter 7: Large box (endless selection) versus smaller stores

13.  Chapter 8: The home improvement industry.

14.  Chapter 9: Corporate Stock

15.  Chapter 10: Competitor strategy

16.  Chapter 11: Corporate Strategy

17.  Chapter 12: The corporate culture of Home Depot

18.  Chapter 13: Strategic Managers

19.  Literature list

20.  Enclosure

Introduction.

During the lesson we had the opportunity to read quickly through some of the cases. The reason why we have chosen the Home Depot case is first of all that the home improvement industry appealed to us. Maybe not the industry itself, but the fact that we have never written a paper or did research for the home improvement industry. By choosing the Home Depot case to write a paper about, seemed a good way to us to enlarge our knowledge about the (US) home improvement industry. The knowledge gained might prove to be useful in the future.

The case about Home Depot gave a lot of information, from the history till the corporate culture. Although a lot of information was in the case, we had to do a substantial amount of research on the internet. The research on the internet was mainly to look for information about Home Depot self as well as for some theory. For most of the theory used, we had several books, ranging from the strategic management book used in the course to a book about organisational behaviour.

In this study we will answer several questions with subjects ranging from strengths, weaknesses, opportunities and threats of Home Depot till the corporate culture and corporate strategies. The answers on these questions together will answer the overall question, which can be read in the next chapter. The conclusion will deal with the answer of the overall question. Recommendations from our point of view are included in the conclusion.

The chapters following the conclusion will contain the answers to the several questions.

Problem definition.

How is Home Depot performing and can they continue like that?

The question above is our overall question. Using the answers of several questions listed below, we will come to an answer to the overall question. Not only an answer will be given, we will also share some recommendations for Home Depot. These recommendations are, according to us, the path Home Depot should follow to stay market leader in a fierce competitive industry. The following questions will be answered:

-What are the opportunities and threats facing Home Depot?

-What are the strengths and weaknesses of Home Depot?

-What are the strategic factors facing Home Depot?

-Does Home Depot have any core competencies? If yes, what are they?

-Does Home Depot have a distinctive competency? If yes, what is it?

-What core competencies do Home Depot posses that can be transferred to the professional contractor market? To the planned smaller stores? To going international?

-What are the similarities and differences of the two chains (large box stores and the 25.000 square feet stores)? We will give these similarities and differences in a chart.

-What conditions were necessary to stimulate the growth of the home improvement industry?

-Would you purchase Home Depot stock? Why (not)?

-What competitive strategy is Home Depot following?

-What corporate strategy is the company following? Why?

-What is the importance of corporate culture to Home Depot? Can it be transferred to the new smaller stores? Internationally?

-How important are the current strategic managers to the success of Home Depot?

The first question will be answered with the EFAS (External Factor Analysis Summary), the second will be answered with the IFAS (Internal Factor Analysis Summary) and the answer to the third question will contain a summary of the first to, put into the SFAS (Strategic Factor Analysis Summary). The definitions will be explained in the dedicated chapters.  What we can say already is that the EFAS and IFAS were designed to deal with criticisms of the famous SWOT analysis. Some of these criticisms are; that the SWOT generates lengthy lists, uses no weight to reflect priorities and there is no logical link to strategy implementation.

Summary.

In the summary we will summarise briefly all the questions and the corresponding answers. For the first three questions and the question about the two store chains, we would like to refer to the corresponding chapters (External Analysis of Home Depot, Internal analysis of Home Depot, Strategic factors and Large box (endless selection) versus smaller stores ((convenience)), because the charts are in our opinion a good summary of the questions.

-Does Home Depot have any core competencies? If yes, what are they?

The core competencies of Home Depot are that things where they are extremely good in. Core competencies are often called core capabilities. Home Depot's its core competencies are their rapid expansion, which was possible because of their very strong balance sheet situation. Then in terms of their customer service, they posses high skilled and helpful personnel. They give professional clinics and demonstrations of methods and techniques of performing a job safely and efficiently. Their personnel is in some stores 24 hours a day available. With their computerised systems, like barcode scanning and minicomputers, the checkout lines are not that long. Further on, they've got their own truck rental and tool rental service. Price is their next core competency. They know prices of the competition through professional shoppers. This price competency, Home Depot is able to reach, because it can gain products from over 5,700 vendors/suppliers. Their wide product range is the next core competency. Home Depot owns a product range with which they can supply all the participants in the home improvement industry. They do that with a product range with 40,000 to 50,000 products in different variations. Their Human Resource Policy which supplies them with the next core competency and that is their strategy to get highly skilled personnel via using several kinds of methods during the interviewing process and training period of the employees. Giving those employees a certain kind of salary doesn't make the customers feel that they are very important or less important. Last but not least is Home Depot's tremendous buying power, which they reach through their market leadership and their quantity of stores.

-Does Home Depot has a distinctive competency? If yes, what is it?

Home Depot's distinctive competencies will be their rapid expansion over the past years, their pricing of the products and their wide product range. These three factors all meet the three required facts to be a distinctive competency.

These facts are:

-The customer perceived value that must be there in disproportionate contribution

-Being unique and superior over your competitors

-Something that can be used to develop new products/services or to enter new markets

-What core competency does Home Depot posses that can be transferred to the professional contractor market? To the planned smaller stores? To going international?

The core competencies Home Depot can transfer to the professional contractor market are their:

-Customer service

-Product range

-Low prices

-Human Resource Policy

-Buying Power

The core competencies Home Depot can transfer to the planned smaller stores are their:

-Customer service

-Product Range (limited to the products that will sell in that area)

-Low Prices

-Human Resource Policy

The core competencies Home Depot can transfer to the international market:

We think that Home Depot can transfer with the same competencies they are on the US market already. Only thing they have to watch out for, is the difference in culture for which they maybe have to change the competency a bit.

-What conditions were necessary to stimulate the growth of the home improvement industry?

There were several conditions which have stimulated the growth of the home improvement industry. The first one is the economy. For the last 8 years (at least till 2001) the most influence on the growth of the home improvement industry. In a good, growing economy a lot of people feel the need to refurbish/ renovate their houses. A substantial amount wants to do that themselves. More and more customers, more sales, more growth of the home improvement industry.

Technical advancement is another item that stimulated the growth of the home improvement industry. Because of the application of for example scanning systems to improve checkout time and productivity improvement programs processes went among others quicker, became more attractive to go to a home improvement store. More attractive to go to one of the stores, more customers, more sales, more growth of the home improvement industry.

A third factor that stimulated the growth of the home improvement industry was the good divided market. Good divided between the larger retailers (like Home Depot) and smaller competitors. Of course there was competition between the larger ones and the between the smaller competitors, but in general there can be said that it was a rather peaceful environment, which stimulated for growth.

The fourth factor, which helped to stimulate the growth of the home improvement industry, was the changing needs of customers. The customer needs changed from spending, spending, spending to a more quality value. This quality could be offered, home improvement became (more) interesting, more customers, more sales, resulting in growth of the home improvement industry.

-Would you purchase Home Depot stock? Why (not)?

-What competitive strategy is Home Depot following?

-What corporate strategy is the company following? Why?

Would you purchase Home Depot stock, and why?

It seems that The Home Depot has not quite been able to live up to expectations of the professional stockbrokers.

Growth stabilizes and it looks like competitors are closing in. As an answer to the stated question we give a moderate no.

What competitive strategies is the company following

In the beginning the competitive strategy was that they would offer anything at a low price, this system was enabled by the superstore-formula the home depot used and pushed competitors into the niches of the market

Now, new battlegrounds are especially expansions to foreign markets (outside of the U.S.) and Technological Development.

We can say that The Home Depot has basically one major rival company which is by far the most important in the current situation, in the market which is Lowe's.

It looks like competitors are gaining grounds on Home Depot in terms of innovation and customer services.

What corporate strategy does Home Depot use and what is the role of strategic managers?

The Home Depot integrates a dynamic corporate level strategy commensurate to its ability to sustain rapid expansion. The Home Depot has primarily used a Growth / Concentration / Horizontal strategy to achieve unprecedented growth. The firm focuses on expanding their products into multiple geographic locations at the same point in their value chain, while simultaneously increasing the range of products and services offered to current markets.

The home Depot uses both  an internal development strategy for expansion as an acquisition strategy. Although it has to be said that the internal Development strategy is most commonly used (especially in the United States). Acquisition is more common in foreign markets or  If a region is unable to digest the cluster theory, in such a case, The Home Depot will modify their culture to make it compatible with the new strategy. For example,  The Home Depot acquired Aikenhead's Home Improvements Warehouse chain in Canada, and then formed a joint venture with the company to insure a smooth transition of corporate cultures

The Home Depot Portfolio strategy is formed by the strategic plan laid down by the founders of the company as well as the store-owners who have to adapt this system in order to match with local demand. The basic portfolio is being enforced on a store by the headquarters but after that the store managers have the opportunity to adjust their portfolio.

The Home Depot Management is layered so there are both vertical and horizontal linkages among the firm's management. The bottom of the structure consists of store department managers governed by one store manager responsible for delegating duties and upper management's directives.

The placement of international operations on The Home Depot's organization chart reveals that the firm treats international stores similar to those in the U. S. divisions

According to the strategic management of Home Depot, they like to concidder themselves as really not so important at all. They seem to have the philosophy that the real work and the real success of the company depends on the people who deal with the customers every day in the stores. Strategic managers at home depot are more like moderators then like managers.

-What is the importance of corporate culture to Home Depot? Can it be transferred to the new smaller stores? Internationally?

The corporate culture, together with the norms and (core) values, form basics of the identity of the company. Almost everything the company does can related to the identity of a company. Because everything can be related to the identity of a company (and thus the corporate culture) we have the opinion that the corporate culture is very important for Home Depot.

We can not see reasons why the corporate culture can not be transferred to the new, smaller stores. The information available about theses smaller stores gave us the idea that the way of doing business in principle is the same as the larger stores. Personnel and customers are still very important for example. Corporate cultures can also be taught upon a certain level, it is a question of looking for the right personnel and when necessary try to make them understand the corporate culture and maybe teach them.

In the previous paragraph, we had to do with the transfer of the culture in the same country. We have the opinion that there are too much differences between the US (corporate) culture and other countries' (corporate) cultures. Too much differences to transfer the complete corporate culture internationally. Some parts can be transferred; maybe parts in the upper two levels of a company's corporate culture, but it can not be transferred as a total.

Conclusion.

Home Depot has quiet a lot of core competencies with which they can be extremely beneficial in the market. We think they should go on with their expansion, maybe not that much in the USA but for sure in Canada and Mexico. In the USA they have a distinctive competency with their rapid expansion and they should keep this in site to keep this distinctive competency.

Their customer service can not be seen as a distinctive competency because Home Depot's biggest competitor has similar services. Maybe, Home Depot can create new systems, systems as they have created before, that supported their customer service and then try to get the customer service a distinctive competency also. For the foreign markets we would like to advise to Home Depot, to follow the similar customer service they are using for the domestic market and then adjust it to the culture in those foreign markets.

Home Depot must keep on going with their Everyday low pricing and keep on checking competitors prices by professional shoppers that report to the Management. Keep on searching for new vendors and manufacturers to be able to anticipate on changes within the market. When doing this, they will be able to extend their product range as well. Try to keep on establishing rights for products, so that only Home Depot is allowed to sell those products on the market.

To be short in sentences, Home Depot has to keep their distinctive competencies distinctive by controlling the market and actions made by competitors and try to make a core competency a distinctive one.

We think that it is a good idea to continue with the process of the smaller stores. People are maybe not getting tired of shopping a whole afternoon for some products in a large box home improvement retailer, but it is close. With these smaller stores, Home Depot can enter places more easy than would be the case with a large box store. These kind of places would then not be at the same places large boxes can be placed, but maybe more to the centre. Another reason is that it is cheaper to construct and maintain a smaller store. Other reasons why Home Depot should continue with the smaller stores are: easier parking, less crowded aisles and quicker checkout. The large box stores will still remain the growth engine, but together with the smaller stores a larger success can be reached according to us.

There were several conditions which have stimulated the growth of the home improvement industry. The first one is the economy. Although the US economy is not running that well nowadays, that is not a very bad thing because a lot of products of Home Depot are recession proof. Home Depot should focus on these kinds of products.

Technical advancement is another item that stimulated the growth of the home improvement industry. According to us Home Depot should continue developing/ improving the productivity and effectiveness improving programs, al in the best interest for themselves and for the customers. Also internet should be continuously kept up to date/ improved to provide the best service possible fort he group of people who like to shop via the internet, although these are not the real home improvement customers. Not the real ones because they need to feel and touch before buying.

A third factor that stimulated the growth of the home improvement industry was the good divided market. If Home Depot continues with the smaller stores the stable market will not be that stable anymore. Considering the fact that Home Depot has among others a lot of experience and financial resources, we are convinced that Home Depot can handle the competition on the market.

Changes of customer needs are hard to predict, but Home Depot has to try to foresee these kind of changes to be prepared on what the customer wants and so strengthen its market leader position.

The Home Depot Stock seems to have had it's best days, for the past year the developments had been that expectations have not been fully met, Stock values have been slightly decreasing and forecasts don't predict any revolutionary change in the near future, And still Home Depot is not a bad stock to buy. Home Depot values stockholders greatly and rewards them with a generous dividend every year

Home Depot is the Market leader in the Retail-construction market, However the market now shows signs of saturation and Home Depot begins to have more worries about competitors, especially Lowe's is one to keep an eye on. From the reports analyses and documents that we read it seams as if Home Depot has done less in the field of innovation and R&D then other competitors, so we would advise Home Depot to invest in innovations other then IT, because they seem to be pretty well up-to-level in the IT services department.

The Home Depot integrates a dynamic corporate level strategy commensurate to its ability to sustain rapid expansion. Since inception in 1978, The Home Depot has enjoyed a 30% average annual growth rate thanks to it's corporate strategy it was at the time one of the most rapidly growing companies in the U.S. The Home Depot has primarily used a Growth / Concentration / Horizontal strategy to achieve unprecedented growth The firm focuses on expanding their products into multiple geographic locations at the same point in their value chain, while simultaneously  increasing the range of products and services offered to current markets. Occasionally, the corporate strategy follows a Stability / Short-term / Pause strategy to digest their rapid growth. From 1978 to 1983, The Home Depot grew from an idea to a nationally recognized leader in the do-it-yourself industry. Home Depot's CEO Bernard Marcus believed the only restraint The Home Depot faced was its inability to quickly recruit and train new staff. The Home Depot's multidivisional organizational structure is collaborative with its current corporate structure. One advantage of the multidivisional structure is the decentralization of decision making. This is widely used in the corporate cultural of The Home Depot. For example, corporate headquarters set individual stores up so that they were very similar, but individual managers could change a display or order more or less of a product if they could justify the change.

The corporate culture is very important to Home Depot. In our opinion, the culture of Home Depot works well and is transferable to the smaller stores. Going international with the same culture can create some problems, because not the whole culture can be transferred. We think that for going international Home Depot should focus on a culture, maybe different from the one in the US, with which the same good results can be gained.  A maybe different culture, but it must be in the line of the one of the US. Otherwise people will see Home Depot very different in different parts of the world. This does not have to be bad, but as we understood from the case Home Depot wants to maintain its image everywhere the same.

Basically the strategic managers have 2 main functions: To design business concepts and business processes that give the company direction, a concept and structure which enables the company to distinguish itself and achieve success more easily, To be a Watchdog for the business processes to work smoothly, anticipate to changes in the environment of the company and to solve operational problems related to the business process, or concept.

Important is that the strategic managers get most of their ideas from the lower-level employee's this is invited and encouraged in the open business culture of Home Depot.

Chapter 1: External analysis of Home Depot Inc.

What are the opportunities and threats facing Home Depot?

In this chapter we will try to make as clear as possible what we think the opportunities and threats facing Home Depot are. These opportunities and threats will be summarised in the EFAS (the External Factor Analysis Summary). The opportunities and threats in the EFAS will be combined with the strengths and weaknesses, which are summarised in the IFAS, in the SFAS (the Summarising Factor Analysis Summary). For the SFAS, please see next chapter.

The EFAS, as well as the IFAS, consists of 5 columns. In the first column, the 8 till 10 most important opportunities and threats are mentioned. The second column is the weight column. In here, for each factor will be given a number indicating the importance of this factor. Most important is 1.0, not important is 0.0. The total weight must be 1.0.

In column three a rate is created for each factor which signals how well a company responses to the factor. 5.0 is an outstanding reaction, 1.0 means a poor reaction.

Column 4 shows the weighted score. This is the weight of each factor multiplied with the ratio of each factor. In column 5 is explained why the factor is chosen, what its importance is.

The last step is then to add all the weighted scores. This will result in the total weighted score and this shows how well a company is responding to current and expected factors in its external environment. The total weighted score can be used to compare the company to others in the same industry, because the total weighted score for an average firm in an industry is always 3.

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Opportunities and threats concerning the company/ industry have to be identified by managers to make these managers anticipate important developments that can have an impact on the firm. According to Kotler, principles of marketing:

Opportunities occur when an environmental trend plays to a company's strength. Companies

can rarely find ideal opportunities that exactly fit to the objectives and available resources.

A company does not have to give the same attention to all threats. Managers should assess the likelihood of each threat and the potential damage each could cause. Focus should then be on the most probable and ...

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